Q1 2020 Earnings Call
Interest expense will be able to moment.
Do you need assistance, placing all conference specialist.
Archie followed by zero.
After today's presentation, there will be an opportunity to ask questions.
A question that press Star then one on your Touchtone phone.
George Your question. Please press Star then to.
Please note. This is being recorded well now turn the call for temperature Arthur Shannon. Please go ahead.
Thank you Greg Good morning, everyone and welcome to our first quarter 2020 financial results conference call participating on today's call, our chairman and Chief Executive Officer.
Chief Financial Officer, Mr., Paul R&D.
Isn't to this live webcast a copy of today's slide presentation. A replay of this conference call will be available on our website under the Investor Relations section before we begin we'd like to remind you that her presentation. Today contains forward looking information.
You take much to read the forward looking statements legend anywhere presentation I think it contains important information.
She contains non-GAAP financial measures work Mason about these measures. Please refer to slide to the presentation non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance is presentation as effective as of today only it is our policy generally not update guidance until the following quarter not too.
Eight or affirmed guidance other than through broadly disseminated public disclosure with that it's my pleasure to turn the call over to John.
Thank you are and thank you everyone for joining us today I'm going to begin today's call with some comments on our response to covert 19 and briefly summarize the first quarter results all hair Dean our CFO will then review the first quarter in more detail and update our 2020 guidance I'll conclude with some closing remarks before opening.
Aligned for questions.
Turning to slide five.
Have you started to see the impact cobot 19 in the unprecedented market disruption. It was creating our first priority was to make sure that are people were safe, we took appropriate measures to protect our supply chain the ability to meet customer demand, we reached out to help our customers, we minimize disruption to our R&D projects and we protected our financial service.
Our team did a great job, then muddy business continuity plants across 100 countries and enabled us to remain focused on supporting our customers and health care patients globally in fact.
We have over 10000 colleagues on the supply chain frontline have been and continue to work hard to make sure that Bausch health products remain available for the patient and consumers who rely on that.
Thank you.
So all of our supply chain employees that neighborhood continue meeting customer demand importantly, today, we're not see any material cobot Nike related supply disruption.
We have access to multiple sources <unk> and intermediates many of our product at this time the availability of Apiay intermediates has not had is not expected to have material impact on our supply chain.
With respect to our largest products I Saxon yeah, five months supply on hand enough active ingredient manufacturer. Another five months supply finished goods.
We've also been able to minimize disruption of our commercial capabilities R&D effort, we have been supporting health care professionals virtually we're in person interactions are suspended yeah, we're working with health authorities and investigators to protect our clinical trial participants in personnel.
Also we believe the steps we took over the last several years to manage our capital structure have placed us in a strong position to weather. The storm committed liquidity perspective, we have no amortization payments or debt maturities. So 2022, and then we have an undrawn revolving credit facility to sum up we have.
Taken actions to keep our colleagues safe.
Our supply lines intact and to lay the foundation of our company work through the Cobot 19 uncertainties.
With these measures in place our goal was to fulfill our mission of improving People's lives with our health care products on slide six did not want the actions we take it first and foremost we're working to advanced science to find solutions for covered 19, we have initiated clinical trial programs in Canada evaluating investigational use of Nebulized anti viral.
Virus all in combination with standard of care therapy to treat hospitalized adult patients with respiratory distress.
The sales team is working to initiate trials to evaluate Saxon in combination with established therapies to potentially address the symptoms of gastrointestinal distress in pulmonary compromise associated cobot 90.
Second our health is actively donating medicine and health care products to assist in the global fight against Kogut 19, including clerk when is it there my sense I dropped daily contact lenses and Nebulized virus all.
We will remain focused on doing our part health and this unprecedented global health pandemic, providing resources to support global health care systems, frontline healthcare workers and the patients and their care.
I am extremely proud of the job that our team has done in facing these challenges and making sure that a business continues to operate during this period with minimal disruption I. Thank the entire about health team for their continued focus and dedication over this critical period moving now to slide seven I want to address the estimated impact it.
Hi, Good Nineteena has had on our first quarter results that will cover this in more detail, but at a high level, we estimate that coded 19.
Adversely impacted first quarter revenue by roughly $35 million or approximately 2%. This includes the positive impact of $30 million from pantry loading in putting a global consumer and U.S. vision care as customer stocked up on supplies in advance of the shutdown and it was offset by a negative cobot 19 impact revenue of approximately 65 billion dollar.
This proposed the postponement of elected medical procedures as directed by public Health authority affected our global Solta and surgical business unit as well as our ophthalmology Rx business were pre and post operative prescriptions decline.
Our international Vision care business was impacted by retail store closures by decline in contact lens were due to decreased social interactions.
Finally medical office closures in the U.S. resulted in prescription declines in late March which affected our dirt and dentistry business unit.
But these points in mind, let's briefly review the first quarter results on slide eight while total company result was flat compared to the prior year. There were a number first quarter highlights to note our largest segment Bausch and Lomb International delivered 14 consecutive quarter of overall organic revenue growth despite headwinds from coal.
90 cents reported mid single digit organic growth, despite approximately $40 million Oh, we lots of exclusivity headwind primarily from a presale satisfaction Trx is grew by approximately 6% and retail extended units saw approximately 6.5% growth first the first quarter 2019.
Truly it generated $19 million revenue in the first quarter and Trx grew by 52% compared to the prior year quarter Relistor revenue increased by 19% as result of growth the oral formulation and new market access formulary wins, we're also able to repay approximately $220 million of debt.
In the quarter using cash generated from operations on the right. We have call. That's a notable key developments first after we settled the Cabot early in 2018 earlier. This week, we resolve the outstanding satisfaction IP litigation with Sandoz under the terms of agreement all intellectual property protecting surfaxin.
Remains intact, and we preserved market exclusivity until 2028.
We also had some commercial access improvement due to new formulary wins, resulting in low to Max SM increase part D access to 45%, 55% respectively on the R&D front, we have completed the cute key study for Epicel Ahmad which evaluated cardiac safety profile top line results were.
Positive and we expect to initiate a phase two study and the second half of 2020.
The Rifaximin study for avert hepatic encephalopathy was also reported favorable topline results great news that will help inform further research on our next generation indications at formulations. Finally, despite cobot 19 related headwinds, we expect that our plan 2020 launches will remain on track including.
The launch of the Sky High daily lenses in the U.S., which we are preparing for the second half of 2020.
Overall, we believe these first quarter highlights demonstrate that we have built a sustainable and durable business that is well positioned to weather. The uncertainty created by covered 90 with that I'll turn it over to Paul.
Thanks, Joe we're off to a great start to the year, and then cobot Nike through us into a world of uncertainty.
The balance of 2020 and about the potentially lasting impacts of the virus on the way, we promoted products in 2021 and beyond.
Sitting here today, it's unclear what the new normal might look like but I'm confident that with our portfolio of durable brands, we will adapt and prosper.
I'll start with slide 10, showing our revenue by business reported revenue was roughly flat versus Q1 of 2019 FX was a 90 basis point headwind. So constant currency. We grew 1% organically we are flat as a synergy acquisition closed during Q1 to 2019.
Well, Salix and BNL international posted organic growth the bulk of the Koby 19 impacts on our Q1 results were in the Asiapac region. However, social restrictions of the U.S. beginning in March became an immediate headwind for certain of our us business as well.
The being all international segment was plus 2% on an organic basis covert IP negatively impacted our vision care surgical and also Rx businesses, while consumer and international farmer saw some pantry loading the increased revenue in the quarter.
As consumers in the U.S. and other regions observed how social restrictions played out in Asia. They took steps to ensure they stocked up on products. They want to have on hand through a lock down period.
You know global vision care was down 3% organically. This was a tale of two environments nearly half of our global lens business and is in the Asiapac region and it was devastated by Kobin 19, China was down some 66% versus Q1.
2019 organically.
Overall vision care outside the U.S.U.S. was down 16%.
The U.S. was another story U.S. vision care business was up 24% versus Q1 or 2019, the ultra monthly Silicon Hydrogel brands family was up 49% in the U.S. aided by the mid March I see the mid 2019 launch of the Multifold Ocull toric.
Biotrue one day lenses continued to deliver impressive growth plus 23% of the west versus Q1 2019 to read through here is that as we gear up for the launch of the daily Silicon Hydrogel lenses in the US which is still on track to wage 2020, you are seeing that our vision care business led by John Ferris has.
In place a high performing team capable of driving attractive growth in a very competitive category.
You know consumer was up 12% organically outside the United States, plus 4% in plus 24% in the U.S., we benefited from consumers pantry loading during the quarter in the U.S. Louisville five sales in the quarter were up 9 million, what 91% versus Q1 of 2019 and lose if I was not one of the brands with significant pan.
Three loading.
Preservation sales in the U.S. were up 26% from Q1 2019, driven by impactful DTC campaign and successful promotional activities with Costco.
True multipurpose solution was plus 32% U.S. versus Q1 of 29 team my takeaway from the pantry loading is the consumers intend to stick with there being no consumer products. They loaded up ahead of sheltering at home and I expect that many found in will find ways to continue to purchase our consumer products, whether that's on trips to the pharmacy.
The home delivery or internet fulfillment, some brands will be more resilient than others, but overall there are reasons for optimism for a global consumer portfolio.
Through the situation.
BNL surgical was down 6% organically outside the U.S., we were down 8% organically and soft in many markets, but particularly China with surgical revenues were down more than 40%.
In the U.S., we were actually doing quite well until March and ended up down 2% organically.
Global Opto Rx was down 16% organically down 10% organically outside the U.S. and down 18% in the U.S.
Outside United States, the coal would impact in China was a big factor in the U.S., which accounts for roughly 60% of global Optumrx revenues two of our major products are most often use pre and post I surgery that lotemax and present.
Those brieant SAR rapid declines and Trx is in March at surgeries began to be postponed continued erosion from the L., we have lotemax, especially was a big factor versus the prior year quarter as well.
The plus side prior to the cobot impact being felt in the U.S., resulting had been showing improved momentum in trx is sales reached $13 million in the quarter, plus 56% versus Q1 or 2019 and that was with only about 30% Med D coverage beginning July 1st our Med D coverage provides multiple step up to roughly 45.
So things are looking up delta.
International Pharma was plus 9% or plus 24 million organically versus Q1, or 2019, Canada, Poland and other eastern European countries delivered the growth.
I want you to note that our international pharma businesses are being in eastern Europe, The Middle East, Canada, and Latin America, our international pharma businesses in Asia Pac in Western Europe, a much smaller it was very little Colgate impact on international farmer during Q1, and we're expecting these units to be relatively resilient.
On the sales tax Salix was up 32 million or 7% on reported basis, a major grows reside Saxon plus 69 million or 23% and truly its which was acquired in March of 2019, which was up 13 million bucks quarter over quarter, Elouise, including appraisal you cerus where growth drag in this segment.
$40 million include method declined as expected by $17 million or roughly 45%.
Oh, the 23% growth to sex acts and 6% came from increased net selling prices relative to Q1 of last year.
The impact to the price increase that we took in January offset by associated increases in rebates.
17% increase in sex acts and volume came roughly half from it.
To be from increased in consumption and half from an increase in wholesale or retail channel inventories relative to Q1 of 2019. There was no plan to increase channel inventories. This was just normal fluctuation from quarter to quarter.
Truly is trx growth was driven by increased promotional effort as well as improve managed care coverage.
A quick shout out to the Salix team led by Nicola KLM, Josh coil, our key brands and the dji space rely on the addition of do patients to sustain grow prescriptions roughly half of Xifaxan I Rexs are for the acute indication of idea, Steve and truly answer isn't a clear growth phase so both rely on adding new patients to the fun.
It's less action and truly its directors have been fairly durable through the last eight weeks and that speaks to the pre cobot success of our sales team building awareness and support for our brands amongst physicians.
Through the first four weeks of April that's actually Trx remain at roughly 90% and truly it's better than 95% pre kobin levels.
You also George segment was down 5 million or 4% on a reported basis medical Durham was down 18 million or 18% half of that coming for price and half from volume.
We had strong growth Ado, jublia and modest growth for bilbrey, but those are more than offset by decline in royalty income from Carrick in a number of other products.
The onset of cope with 19 of the U.S. heady rapid and dramatic impact on our portfolio of med derm products.
Global soldier grew 37% organically versus Q1 of 2019, a pretty good but sold was up much more than that early in the quarter before cobot 19 took the wind down to Socal sales.
Note that some 60% global sold to revenues are from the Asia Pacific region.
Finally, the diversified segment that was down 27 million or 9%.
Neuro was down 24 million versus the first quarter last year Elouise accounted for over 31 million dollar decline and that was partially offset by well be treated a plans and that together grew 14% versus Q1 to 2018.
You asked generics business was flat with Q1 last year in dentistry was down roughly 16% the onset of Covidien U.S. also had a rapid and dramatic impact on our dentistry business. So that's the revenue story of the quarter. So let's move to slide 11 to cover the rest of the BNL.
Our gross margin improved 80 basis points from Q1 of 2019. Most of this improvement can be traced to the sealing segment, where gross margins increased over Q1 2019 by 330 basis points as we paid lesser royalties on glumetza in a presale due to lower sales and a royalty onsite fats and that sales expired in Q3 at 20.
T.
Selling advertising and promotional expenses were unfavorable 7 million or roughly 3% on a constant currency basis to the addition of sales resources in connection with the synergy acquisition and higher selling costs in the U.S. vision care group that supported the excellent gross at that team is delivery.
DNA expenses were $35 billion unfavorable to Q1 of 2019, mainly due to increased ITM legal costs no did as I've said in the past our June a run rate is something like $150 million per quarter. So we're right around that level in the prior year quarter was at a low level and less reflective of our go forward run rate.
R&D was up 5 million as we continued to build out our R&D organization to support a brought a plate of development projects. So quick summary.
Revenue was down 4 billion EUR 80 basis points better gross margin gets you to plus 13 at the gross profit line Opex growth Rose 47 million, mainly due to an unfavorable club for DNA and that gets you to minus 34 declined at the EBIT.
Accuse me adjusted EBIT, eight and down 38 million add adjusted EBITDA versus Q1 of 2019 couple of things below the operating line net interest expense was favorable by 13 million going the other way our income tax rate on an adjusted pre tax earnings increased from 6.3% to 10.4% relative to the X.
That is 8% rate that reduced adjusted net income by roughly $8 million I'll point out that our quarterly tax rate can be quite volatile in normal times in a world. We are forecasting the balance of 2020 is more challenging than normal even more so we continue to believe that the tax rate on adjusted earnings will be 8% for the full year Twentytwenty.
Turning to slide 12 in the quarter, we generated $261 million a cash from operations, that's down 152 million compared with Q1 of 2019. The biggest factor was an increase of working capital primarily due to the cold related delays in collections from accounts, mainly in Asia Pacific. There was also a shift in the timing of cash interest.
Payments due to our refinancing activity and finally, we made a licensing payment in the quarter for an agreement we executed in Q4 last year turn to slide 13. This shows the progression of our debt balance over the last four quarters. The settlement of the U.S. Securities litigation funded with unsecured debt raised in December last year set us back on reducing the quantum of our debt.
In improving our leverage ratio. However, it was the right thing to do and we will get right back to part chart prioritizing the use of available cash to reduce our debt I reported back on to the February call that the December 31st 2019, net debt balance was inflated by the timing of the December debt raise in the use of those proceeds.
In on obviously, the our December 31 night team that debt pro forma for the deployment of those funds was roughly 24.2 billion on a same basis, our pro forma balance at March 30, Onest. The net debt balance is roughly 24 billion about 20 200 million lower than the pro forma net debt at year end.
Turning to slide 14, slide 14, as a slide we had relegated to the appendix, but in light of the importance of liquidity Nicole would world I want to speak to where we are sitting here today, we have over a billion dollars available under our revolving credit facility and no debt coming due this year or in 2021, our next debt maturity is in the first.
Quarter of 2022 importantly, all of our debt coming due in 2022 is of a secured nature. That's an important distinction as a senior secured debt markets are a more predictably available source of capital the risks associated with refinancing the twentytwenty to maturities were secured debt are lower than if those.
Maturities were unsecured let's shift gears and cover guidance for the full year Twentytwenty.
Well covert 19 had a modest impact on our Q1 results our expectations of the impact for the full year are meaningful.
We have a which we are a diversified healthcare company, we have different businesses and operate in many geographies around the world.
Each of our businesses will be impacted to different degrees as covert 19 plays out. In addition, the time until the Covidien pack bottoms out and the shape of the recovery curves will be different in each and every one of the markets, where we do business.
On slide 16, we group our businesses into four buckets from those businesses that we believe will be east impacted to those that we think will be most impacted by covered 19 bear in mind that the BNL International segment that represents roughly 50% of our excuse me, 56% of our total revenue in 2019.
Operates in more than 100 countries and that the mixes of revenue within each of those countries are very different.
For example in Asia Pac more than 40% of the regions revenues come from vision care in North America Vision care is only 5% of total revenues the progression of covert 19 in each and every country will be deferred depending on the nature in effectiveness of local steps taken to control the spread of the virus within the U.S. to recur.
Every is unlikely to be uniform across all regions as a little long winded there, but I think it's important when you think about the range of outcomes for us in Twentytwenty.
Up to slide 17, where we list our major assumptions with respect to covert 19th.
Start with broad assumptions first we are assuming that health authorities will use the learnings from the initial outbreak and recovery to be far better prepared to deal with a potential resurgence of the virus in the fall.
We assume that in the event of a fall resurgence, we will not see significant social restrictions put in place by local authorities second we are assuming the global economies will recover as the covert 19 situation resolves over the balance of Twentytwenty.
With respect to our business. It does this impact and recovery assumptions, we see the greatest impact on our businesses. During Q2 due to the shelter in place directives closing of retail outlets healthcare providers closing offices and post formula of elective surgeries, we expect the recovery to begin in the latter part of Q2 and continue into Q3 and.
Q4.
We expect that all of our businesses have the ability to return to pre covert levels. Some perhaps as early as late Twentytwenty, but most certainly in 2020, what several of our business units will recover more slowly, particularly BNL surgical our medical dermatology business and our dentistry business.
On slide 18, we show our revised guidance for 2020, the uncertainty around the depth of the covert impacts in the shape of recovery curve for each of our businesses presented challenges for us for sure.
We develop multiple scenarios based on various assumptions regarding the impacts of over 19 on our businesses based on our review the range of outcomes and therefore, our guidance ranges are wider than normal.
I want to point out that FX rates have been very volatile since we provided guidance back in February and reduce our revenue expectations for 2020 by some $160 million in adjusted EBITDA by 70 million.
For currencies account for the bulk of that change the euro the Russian ruble Canadian dollar and the Mexican peso.
Our revised guidance ranges are for revenue of $7.8 billion to $8.2 billion adjusted EBITDA of $3.15 billion to $3.35 billion. We're now expecting yes, you need to be down roughly 200 million on a reported basis with about $25 million that decrease due to FX. So in light.
To the reduced revenue expectations for 2020, we took steps to reduce our full year 2020, yes, genie by roughly $175 billion on a constant currency basis.
Finally would reduce revenue and profit expectations, we've reduced our guidance or cash generated from our operating activities to roughly $1 billion.
With liquidity a topic that is top of mind I want to state emphatically that we are in excellent shape.
And at the low end of our revised guidance ranges, we're still strongly cash flow positive we remain comfortable compliance with the terms or our debt agreements with substantial covenant cushions.
We have a $1.25 billion revolving credit facility under which we have ready access to more than $1 billion and we have no scheduled debt payments until the first quarter of Twentytwenty assuming 2022.
Before we turn to the 2020 guidance bridge. Please note we are revising our revenue and adjusted EBITDA guidance out to Twentytwenty to.
The way we've expressed this in the past it was a little awkward and possibly confusing what we said was that off of the midpoint of the original 2019 guidance at constant currency, we expect the CAGR on revenue and adjusted EBITDA to the range of 4% to 6% for revenue and 5% to 8% for adjusted EBITDA.
Clarity are starting points for that guidance was 8.4 million for revenue and 3.4 to 5 billion for adjusted EBITDA adjusted to today's FX rates those amounts will be 8.23 billion and 3.355 billion respectively.
Slide 19 shows the 2022 ranges defined by the key takers in dollars at current FX rates, which I hope will be less confusing.
As part of our detailed review the depth and duration of the impact of covert 19 for each of our business units, we took steps steps to protect our near term profit and cash flow by pairing back eliminating or deferring some near term investments for example, DTC for jewelry.
The plant expansion of our sales footprints in Europe for both BNL interim Solta and other programs and that was to ensure that we do our best to protect earnings and remained solidly cash flow positive to the koby depth and recovery.
Deferral of these investments comes at a cost to our longer term outlook for various of our business units today, we're revising our candidate Cagar guidance using the same starting points to 3% to 5% for revenue and 4% to 7% for adjusted EBITDA. Please please see slide 19.
For the Twentytwenty to dollar ranges at current FX rates.
Overnight he was not the only factor not revised outlook for 2022, we continually review and update our long range forecasts for all of our business units and it was a combination of both changes and outlook and the impacts of covert 19 that caused us to revise our cagar guidance absent the longer term impacts of covert 19, we would have made.
Painter prior Cagar ranges.
Turning to slide 20 for the guidance bridge at the midpoint of our range, we're reducing our 2020 revenue expectation by $560 million on a constant currency basis almost entirely to the impact of covert 19. You also see that we expect to offset some of that lost gross profit through reductions of esque DNA and a modest decrease.
In our expected R&D spend with that let me turn it back to you Joe.
Thank you Paul.
Well, our revised 2020 guidance largely reflects the impact of cobot 19 on our business I want to emphasize that is based on a set of assumptions. There is still uncertainty or uncovered 19 and its impact. However, we believe our health is well positioned to return to growth when we can move beyond the impact the code 19, turning now to slide 22.
Oh, we highlight the durbin bread each of our business unit beginning of Bausch and Lomb. Our largest segment represented 56% of total revenue. The brands include products like Liquefy eye drops credit division vitamin contact lens items, such as Bausch and Lomb Ultra and Biotrue, one day surgical devices like the Invista interact airlines in this larson.
Eight systems, all great brand in our sales segment, which represents 23% of our revenue so faxon truly and rail store, our key durable brand and our dermatology business represents 7% of our sales we have great brands, including Jublia.
Do over it and they're not chef Alex so great brands, there turning to slide 23.
We have outlined a few clinical milestones to watch in 2021st.
We expect approval and us launch as the site high daily lenses. We have received five 10-K filing except as from the FDA and the expected launch is on track for the second half of 2020 next is the Rifaximin solubles.
Solid dispersion, which we call SSD immediate release formulation, we received positive topline results from a phase two study at the end of March According to the results using Rifaximin SSD in combination with standard of care therapy with that typically significantly superior to the placebo plus dinner care therapy.
Vert hepatic encephalopathy, we're excited about these results, which will help us decide and further result in further research for new potential indications.
We expect the first application will be in sickle cell anemia with clinical trials starting to commence later this year or sometime in 2021. We have also have a number of additional rifaximin studies evaluating new formulation for treating other G.I. conditions, including post operative grown study see boat and the complications of cirrhosis finally.
Positive topline results from Amazon element. The Qt study demonstrated MSL not has no effect on Qt interval prolongation, which has been associated other molecules in this class no. Other significant secondary safety signals were identified and we expect to initiate a phase two study in the second half of 2012.
Yes.
Before I begin my concluding remarks, I want to briefly address the impact of Cobot 19 on our R&D organization. The R&D slide in the appendix on page 26 provides a snapshot of our late stage pipeline as status of each program well new patient enrollment in clinical trials have been temporarily pause due to the impact of covered.
18, we continue to work with our investigator sites to follow up with subjects that were already enrolled at various trial prior to shutdown as per the study protocols, we plan to resume new patient enrollment clinical trials. Once restrictions uncovered 19 have been lifted and look forward to get into clinical trials back on track.
So the impact on cobin. Thank you.
Well why did you take the the first part of that question and talking about the the commentary on the pipeline and the 2022 and then as we get to the countries I'll I'll take over in that on the side effects and so why don't you start for something that Guy just question.
Irritate you know things Joe in can't Thanks for the question I mean, the looking out when we do our log range.
Forecast. So we are taken into consideration those new products that we expect to introduce the come out of our development pipeline say not all of those are going to be of the blockbuster nature, but it's a steady stream of new products that come out of our development pipeline that are included in that 2022, and 23 and 24 as we can.
Junior to Fort forecast out our business you know point out that a good chunk of what you're seeing in the call. It. The next three year. So 2021, well 20 is going to be an interesting year for 21 22 is the continue ramps of the products that we very recently introduced and you you you heard <unk> speak about in my.
Prepared remarks about my my excitement around you know the upcoming launch of the daily Sigh I led zillion light that they degrade drop their U.S. team is doing the marketing the the portfolios eight that they have now feel that's clearly a part of it ended and so are a lot of the other parts that we have within our within our portfolio to.
Day, but there is a steady stream of products being added that help to contribute to that 2022 numbers that goes into that cable.
I think that that second part is the I think getting you're asking the questions about you know what's happening the rest of the world and as you walk around the world. What are we were saying I mean, if you think about what what's happened here, we clearly United States know that the visit to the dermatologist to the I hear doctors or the Gastroenterologist Sir.
Somewhere in the 40% to 75%. So clearly you know that's what we saw but as you said about green shoots we are starting to see some things happen. So for example in Europe or expectation is that we'll see Europe starting to open up in June. We we think Germany has already started to open up now in May China were in the field it.
Activities are back up and running in China. So that gives you some sense of what we are seeing from a global perspective, our expectation on the surgical side is that there is a backlog in the cataract surgery. As an example, we're not going to work through all that in 2020, but some portions of that will work through.
After three quarter for as we see that you know absorb it in other places like our dental business. That's a little different if you didn't go in and get your teeth clean. They you will go in the future, but you're going to there's gonna be some loss in that business and I think that's how Paul tried to <unk> portray that as we thought about what was happening there.
That's the kind of things that were saying facts and we we feel really good about size accent.
Yes, there's some short term issues, but impacts a couple of the is holding up very strong same comment with our truly as business you know notwithstanding all the the the noise out there, but <unk> true they truly it's business about 50 plus percent outstanding performance there what truly so we were looking at these things.
And finding the opportunity the relative <unk> product to continue to grows by fax is going to continue to grow we're looking for those kinds of things for the future. The only other comment I'd add to what Paul fit on the side daily because that is our wonder are key product launches is that we know that the site high market is about 15% of the global market.
And it's growing at 30 plus percent. So that's why we're excited about what we think the opportunity to launch that silicon hydrogen product here in the United States, We watch in Japan, and then take it around the world.
Every or next question.
Oh Nice question would come from David and so on with Piper Sandler. Please go ahead.
Thanks, So just a couple so first on the the lens business Center you cited reduce lens, we were but I wanted to get your sense over the long term regarding whether we could see something of a nude normal in terms of reduced lens usage.
Due to more social distancing or just more vigilant behavior. If he will so is this something that you're planning for over the long term. That's number one and then number two you had had had planned to convert some of your Durham assets to.
To cash pay with dermatology Dot Com I was wondering if you could if you could talk about you know how cold. It is impacting your plans. There do you is that something that you're considering broadening.
Overtime or incorporating more into into tele medicine.
If you will and and help us understand your strategic thinking given given the realities of the pandemic regarding this cash paying bottle. Thanks.
Sure.
Sure I get all those questions first starting on the lens contact lens usage, we we actually expect this to actually bounced back to what I would say would be what we've seen before continued growth in our lives scared business continued movement towards that daily contact lens continued movement to side daily. So all those trends that we've seen I.
We'll come back is there some question about three do social interaction, yes that is true. However, notwithstanding that could think about it for a second certainly you know only think people can see behind the mask is the eyes. So in fact, I mean, I know that sounds silly, but the reality is we're seeing incredible uptake.
What we refer to our cosmetic ones are are colored lenses glass that we have in some of our geography is around the world. So there is some expectation that the contact lens business will continue to return.
The question germ Dot com and how we're managing that do I think <unk> going to impact our plans to convert more products catch pay I do think that there will be some movement in that if you think about what's happening the data I looked at his and Tele medicine is that in one particular plan there was less than 1% of the doctor visits.
Prior to 2020 were four.
Tele medicine. The most recent data that's out there is that Tele medicine has now counting for approximately 15% so you're seeing <unk> absolute transition for Tele medicine, we believe our dermatology dot com will fit in very well with that because of what we're doing for for the dermatologist. So we're looking to continue to see that.
Kind of growth that kind of opportunity for what we're planning on with our Durham Dot com and tell them medicine, and how the cash pay fits in with that our belief. Once again is that this model will allow physicians to get the formulation they want.
Predictable price there won't be any prior authorization and patience won't be upset within that there was promised the price of X. and there was a completely different price that when they went to the pharmacy counter so for those reasons. We do think there's a good opportunity with our dermatology dot com and the tell medicine world.
Operator next question.
[noise] or next question will come from Annabel ceremony with people. Please go ahead.
Hi, a particular my question lunch talk to about the guidance assumptions guess each of the different regions of the world are different and you just saying that you know it runs its course and you're not going to see social restrictions.
And say second wave of this but there is very different experiences.
Across the globe versus the U.S. So how is he contemplated that in your guidance and is that in the low end your guidance and what might that end up doing for all liquidity perspective is there any scenario, where you would have to draw on that revolver. Thank you.
False start on some of this and then you should also combat in terms of the guidance assumptions. They I think what we tried to do is as we thought about this we are fortunate we have a significant business in in China and Asia, we utilize the the information that knowledge that we gained from the earlier activities in Asia helpless.
Think about what was going to happen with our business going forward and as I mentioned before as we're starting to see China now recovered. They started a little earlier. So we're we're started we're we're learning from that but to be clear we develop not just a scenario here. The one that we presented we develop I think it was four different scenarios.
Different time points in different returns in trying to anticipate that there could be multiple things that could happen here. So we built in the four different scenarios and we came up with what we've referred to as I would say, the most likely scenario and and Paul and his team I've just done a great job and thinking through the the multiple parts of this the pushes in the polls.
Relative to win the business would come back how would operate going forward in the future. We don't have a crystal ball, but we do clearly want to make sure that we've looked at all the contingencies and I'll just say before I turned depaul that the worst that Paul in the the Treasury team have done over the last three years have put us in a much stronger.
Position to weather the storm here of covert 19, and clearly be ready for regardless of which way it goes but but once you take share your thoughts too.
Yeah. It takes Joe and thanks to the question of good morning, Annabel, Yeah interesting because we do have so many businesses in so many markets that we are able to take learnings from other markets are we the fellow Tom Appio.
The who runs R.B.N.L. business outside the United States has been just a wealth of information about how this is played out because it's scored it in Asia and there were some things and yeah. We hopeful that some of that data about how how this plays out would be directly relevant to how we would play out in other markets for the reality is each mortgages.
Different that's why I went through that too through that discussion and so you have that that's what leads us to say, having such a wide range of possible scenarios and including taking into effect. The O.E. <unk> more protracted period, you know to the to the end of the depth as well as a protracted periods.
As we as we work our way out out of this out of this environment now what I called out I want to think it's an important point is yeah. We looked at how we thought twentytwenty would play out in the light of that revenue reduction reduced <unk>, mainly yes, selling an advertising and promotion by circle one.
Hundred and $75 million on a consequence he basis.
I can assure you that we owe <unk> scenarios within our company that if things trend below lines. Yeah, we would take additional actions in order to in order to protect our profit in to protect our cash flow <unk>. It was a very involved process Leo led by we my my right hand me and say Mael Shuki, who.
Develops all these things so that we can prepare and be ready depending on how the situation yeah, you'll place out because nobody nobody knows it. It we have a great a great deal of uncertainty, but we're prepared if it plays out in a in a a less favorable way, we're we're ready or we're ready to.
If we start to recover more rapidly via we've done our level best to ensure that we have our resources as one of my favorite praises tanned rested and ready to get back to work it into for you know driving us back towards you draw a towards or pre coven levels now your your second question was.
<unk> liquidity and you know first of all I set it on my remarks at.
We are in their terrific position, even in a downside scenario here. We are strongly cash flow positive from operations and I said. This I think are we we took quite articulate this in our eight k. early early on in this process.
In 2019, our cash from operations was struck a $1.5 billion regenerate and you have to remember that Astro coughing, a very happy cash interest loan. So after all that cash interest we generate a $1.5 billion. This right now based on our range of guidance, where we're saying circuit a billion.
Dollars of cash generated from operations in in 2020 under some scenarios that are you know that are down that are clearly down weekend shelter fun, we absolutely can sell fun secondarily, we have our revolver Yo available to US you ask the question would we would we borrow one that.
Yeah, we we will we will bar on that revolve or in the same way as we have bald on the revolve during the past which is to fund short term requirements you at the end of the quarter. There were no barrings outstanding until revolver will there be barrings during the year <unk> obey short term nature, because our cashflows do not come in.
On a linear basis across across the course of the year <unk>, we already have very good position liquidity wise I can't emphasize enough.
I'm very pleased that yeah, we were able to accomplish everything we're able to accomplish with respect to our our debt capital over the last Oh call. It almost three years now such that our first real maturities are of any substance or or or any substance or routing 2022, those are secure nature.
Those are easier <unk> nothing to easy, but those are easier to finance to refinance and yeah. We feel like we're in very good shape to ride this out you're seeing and our 2020 guidance. What we believe is the range of outcomes in in 2020, and we're prepared whether it's tortured lower end of that.
Range or the Apprenda that range, we're prepared to either way to me and it's true it in and without blinking.
I think camper in the next question.
Unless question will come from Greg Gilbert with Sun Trust. Please go ahead.
Thanks, Good morning, I wanted to go back to the second half launches you're expecting I wanted to make sure I understood whether that was a bad on things returning to normal versus you plan to launch regardless, it's just a function of how you would launch and with what tactics and then.
On the bio similar deal you did I'm curious and I'm sorry, if you already covered this I don't think you did but can you talk about.
The expense of that program overtime, and any associated timelines and whether highly is in your site's as well. Thanks.
Sure I'll I'll take the first part of this and the second started deal first of all on the second half of 2020 are we expecting a return to what I would referred to as the new normal. Yes. We are we spend too that in the second half of 2020, it's not going to be like flipping lights, which it's going to be a gradual we're already.
As I mentioned before seeing some activities in China opening up now we've seen Germany, we expected and May your we expect in June United States is gonna be variable by state some of the states as you know already opening up already some of them. We've already had conversations were doing a lot of virtual meeting.
Things with our docks now and we expect that some of their opening up their practices and and looking forward to getting back into the surgical sweet. So we're we're going to see it happening over time, it's not going to be like a light switch, it's going to be a gradual and working yet multiple geography multiple states as we we do that forecasts on that specific question about.
The launch though for the <unk> is our expectation. They mentioned we've already had acceptance of file for the 510. Okay. It is our expectation that we will launch that in the latter half of 2020, we believe that markets will return it will be there will be ability to get that product launch if it's going to.
You know, it's not going to be once again immediate quarterly across all doctors, it's going to be as they open up we're gonna have the product available. We have the product available will give them the fit sets appropriate to launch and and make sure that we moved forward with those wants activity. So we do think that that's an exciting product exciting opportunity.
They're very fast growing part of the market in one that we think we can participate in with what we think is a great product it's already.
No launched in Japan, So we've got the experience with the manufacturing site and will continue to to move forward. That's that's probably the biggest front on the start of deal minimal expense to us over time status has the program already underway <unk> Stada was looking for.
I I think is they had the expertise for the manufacturing side and the bio similar side, we had the expertise on calling on these doctors we do not have we did not have access to a product like this we felt this opportunity would be a perfect opportunity for us to partner with Scott and give them a win.
Bus when getting out to the North American doctors with this product. So we think it's exciting we're looking forward to partner on this the sentence bio similar opportunity and will work for towards that but minimal other than the up front expense and then some milestone payments as we get closer to want to very minimal aren't the expense for us.
Operator next question please.
Our next question will come from <unk> with a record. Please go ahead.
Take my question <unk> very confused about something today, which is I recall, we discuss specifically the implied 2022 revenues and imply 2022 <unk> off of which was off of the growth cares you had laid out but the growth carriers were being applied on the midpoint.
2019 guidance today I'm noticing not only are the growth Kickers down there are no longer being applied on the mid point of 2019 guidance instead, they're being applied on and FX. Adjusted version of the 2019 guidance and I'm just trying understand why that is and why not maybe just give clean growth numbers implied is it is it is it.
Around three per cent on the low end on E. <unk> growth Cagar, if we still work off of the original numbers, which was mid point at 2900 guidance.
Yeah, I take that question.
Yeah sure you have just clearly directed at me you know the.
Yeah. The the <unk> guides 40 provided it was always meant to be cost of course, it's why we talk about organic we can't control currency, we operate in many markets round the world and that's why we talk about organic that's why we talk about about constant currency well, we laid it out it was meant to be at <unk> at constant currency.
All we did was indeed take the big pointed that 2019 guidance.
Bring it to yeah to the F.X. today, which by the way anybody who was trying to follow along at home you could follow all of our quarters and all that every time, we talk about F.X. and in total up the cumulative impact about that and that's what it is.
And that's what we can we can grow off that's how we we better ourselves is constant currency and so I I I you know.
The old he's trying to express it now on that slide 19 in a way that people can at least say based on currency today, that's what I Oh, that's the range of outcomes you know I to hold ourselves to say, we'd put a k. a long term cake range and say and we'll take currency I, Yeah, I don't think that's reasonable.
Thank you very much.
Upper do we have a time, maybe one last question. Please.
Our last question will come from our Tosch toward with Wolf Research. Please go ahead.
It's too much so there seems to be a disconnect between how much the mid point of the jump to eat the docking down versus how much Casper operations to climb to you know 300. British 500 can you explain what's going on there and I know, there's a lot of moving parts that given the change in long term got in and the stock dropped pay out we're getting to you getting.
Under five times leverage it seems like it's more like a late 2024 2025 of them is that a fair cake or do you have more operating leverage here and then we're really appreciating. Thank you.
Oh, and you take that question and outcome it but that's you finish.
Yeah, sure I mean, I'll I'll start with.
Yeah, we've got a very broad range of outcomes here for you know for both revenue can for a job in for adjusted EBITDA. We've selected eight eight point estimate a roughly billion dollars of operating cash flow.
To cover to cover the range the read the rationale is.
I, even called it out in with respect to work with respect to cash flow generated in the first quarter.
Hope it impacts are not solely on operating results Kobe impacts are also on classic adjusted working capital type type accounts, where I called <unk> in the age of Pacific region, We've had to extend payment terms to weed number over a number of our our customers.
In order that would help them work through this crisis, they were not being foolish about it but it's absolutely stretching the time that it takes for us to convert or convert revenue to cash secondarily, you know management of inventories. During this time period is also a challenge if you're hoping for planning for.
I eat more rapid recovery you maintain inventories on hand to <unk> provided high service level and that could in across a <unk> a range of outcomes end up being a classic where you sort of use of cash for growth of of of adjusted working capital he'll flip side of it is that we like everyone else.
<unk> are doing our best to ensure done the Paypal side, we we do what we can do to help offset some of that but the reality is that we he while we work our way through this the normal ratios that you might look at with respect to adjust to working capital and how to think about that is that they have push pull love of cats generation.
Don't apply until we get back to a more normal state. The range of outcomes is is pretty broad do I did not want to put a broad range of of forecast for cash generated from operations on the table, we put a dog circa billion dollar stuff as a as a good solid spots, where you to take a look out for the balance of the year.
Oh, I'm, sorry, not sort of panels, but for the full year.
I'm sorry, the second part of the question to cash.
Yeah.
Bridge.
Right. So five times leverage it seems like a too late 2024 2025 event now we've got up there take or am I missing something.
Well I I just state you know <unk>, yeah basic basic Factoids, yeah. One we we certainly you push push that the timing of are getting to be able or or five times out when we settled the U.S. Securities litigation an added one point, yeah, one point wouldn't be <unk> essentially to our to our debt load a secondary.
Early as you as you take if you go with my forecast.
Particularly during guides today from 1.5 B. of casual operations down down to one be that that caches not deployed to reduce debt. So yeah. I mean, there there is eight knock on effect that will push this out and and also.
Knock on effects in the longer term of recovery long-term recovery from covert shortly push that out I'm not going to pick a date, when we would <unk> expected to reduce below five x.
Thanks, so much with.
I'd add to what Paul said is that we we recognized you know wouldn't.
<unk>.
Three or four years ago that we had too much you'll ever Jimmy working very <unk> diligently did reduce that we did make some decisions, though to invest a new business invest behind side effects and and with the primary care, we did make decisions to invest in and acquire a product like truly is all those business decisions. We think have been the right decision than we do them all the time because.
We're building as business for the long term, having said that they were absolutely laser focused on this concept of driving shareholder value and as you know we've done before we leave I bested approximately $3.8 billion of asset proceeds in the past and we will continue to look at things that will drive down this leverage in.
Improve the overall share price performance of our company that's everything from aspect divestitures, that's looking at spin off of our business. If we do not believe we're getting the appropriate some of the parts for company. So we're going to look at all the things that will drive long term shareholder value for our company and you can expect as the management team that we.
Focused on that in terms of driving the shareholder value in urgently looking at the things that we can do to try to help.
Pre shareholder value. Thank you everyone for joining us today I'm going to conclude this q. and I would appreciate your attention to our company and they please let US know there are additional questions happy to try to answer. This question as we go for it. Thank you everyone for joining us have a great day.
The comfort says no concluded. Thank you for tiling today's presentation, you may know just color.
[laughter].